Earlier this week, in an instant, my net worth dropped by $28,000.
I didn’t smash up an Apple store (though that would have been fun) or share 100 bottles of Cristal with some homeless folks under a bridge (funner!), or buy a Trefecta bike and forget to lock it up at the store (not fun at all, and seriously, a $28K bike?).
I (and my wife, you IRS eavesdroppers) had just contributed $28K to my younger son’s 529 college savings account. The ugly truth was staring me in the face on my incredibly complex net worth tracker program (aka a google docs spreadsheet): when I moved the money from my brokerage account line to his 529 one, it simply disappeared from our net worth.
A bust in my spreadsheet, you say? Come on now – making spreadsheets is one of the few things I’m good at, and mine, like all good spreadsheets, was doing exactly what it was told. When I added “college stuff” to my net worth tracker, I decided each boy’s line could have one of two values for our net worth: 1) a negative (liability) representing how much we’re short his college savings goal; or 2) $0. Since we’ve been aggressive in funding it, my assumptions (cost of school, annual return, etc.) now suggest we’re OK from an NPV perspective, and the liability sits at $0. But that means that as we move more money into his 529, it disappears from our net worth.
I’m sure this invites a lot of questions. Why do we continue to fund if the liability sits at $0? Why are we paying for college in the first place? Why am I so weird that I use the “min” function in my net worth spreadsheet?
I’ll pass on the first two for now, but for the third, it’s because I’ve put a lot of thought into what this 529 account means. If we don’t save enough for college, I’ll probably sell a kidney or something to make up the difference. If we do save more than enough, though, I don’t have grand plans to claw that money back. It’s a fair representation of how college savings truly do impact my net worth.
I take a similar approach for other items. For example, I don’t get really hung up on the value of my house for my net worth. It is just listed as “house” with no value on the spreadsheet. I have footnotes (yes, I have footnotes to my net worth calc) for both its net market value and a fire-sale liquidation value. I hope someday we can downsize and make use of our equity, but since I don’t have any firm plans there, I’m just letting my house asset perfectly offset my “I need someplace to live” liability.
I am amused by how much precision and how little accuracy goes into the net worth calculations of many a PF blogger. They add up every account – taxable or no – to the penny and then report it out monthly or daily or hourly. That level of precision with something as complex and assumption-laden as net worth is just silly.
If you really want to calculate your net worth to the penny, do it the same way Ashley Revell did. This guy is my hero – over 10 years ago, he sold everything he had and put his entire net worth (~$135K) on a single roll of the roulette wheel. He even sold his clothes and only had a rented tux because he liked “to do things properly”. That figure – the liquidated value of all your assets, converted to a single lump sum of currency (or casino chips) – is your real net worth. (See below for how it turned out for Ashley.)
Tracking net worth, or a facsimile thereof, is really important, but just don’t get too wound up over precision.
State of the Market
I’m scared of roller coasters. The log ride at Six Flags is more my speed.
It feels like the market is a log ride right now, which, in a market, actually scares me worse than roller coasters. Can we please either have a massive meltdown or achieve some new Nirvana with another +50% run?
Beware of Pirates
I am a big fan of pirates, but more of the swashbuckling kind from centuries ago.
The latest in modern-day piracy is hackers who take over your computer and then hold your pictures and files for ransom. I’m not sure which is worse – them threatening to delete all of your important stuff, or the fact that you need to figure out how Bitcoin works to pay the ransom.
I’m scared enough of this threat that it’s going to make me update my data backup plans. I smell a blog post cooking…
Personal Finance Links
The awesomely-initialed PK at DQYDJ argues $1 million dollars is no longer enough to be cool. I would have been more impressed if he had taken up the harder task of proving it was still enough and making us all feel better.
Every PF blogger in the galaxy seems to be referencing this article, about how middle-class folks aren’t asset-based and are bad with their money. I am a PF blogger and live in this galaxy, so there you go.
Nelson at Financial Uproar talks about becoming a private mortgage lender . I like how navigating around the rigid rules of banks allowed him to have a little corner of the market all to himself. Big businesses are cool and all, but there’ll always be some dis-synergies to size that allow entrepreneurs to play.
Steve at Personal Liberty has a hypothetical on a $250K windfall combined with a $250K need . I like hypotheticals.
I was thinking of including “change due date” advice on my travel hacking recommendations, but when I realized it’d take more than a sentence or two, I got tired. Thankfully, G.E. Miller at 20 Something Finance made a whole post out of it.
Scott Burns has an interesting post on how investors in Vanguard “retirement date portfolios” actually outperformed the fund itself. Whoa.
The Market for President
Clinton continues her dominance in the odds.
An interesting addition is Paul Ryan at 100:1. I think I might like to put a little money on that, just for a “what the heck” punt. The two presumed nominees are two of the most polarizing (i.e., loathed) candidates in history, so even at this late date I sense some exciting twists and turns in this drama.
Tip for the Week
Did you know you should be setting your parking brake every time you park? They were pretty literal in its naming. Since I’ve driven a manual transmission since I was young, and I like my car to not roll away, it’s always been obligatory for me.
But if you drive an automatic, you should be setting your parking brake too (before you take your foot off the regular brake). That little lurch your car does when you park and release the brake? It’s not good for your car, but I see it all of the time at the gas station and parking lots.
Note: if you’re going to forget to release the parking brake and drive around with it on, that may more than negate any of the small benefits you would have gained. If you don’t think you can remember to release it, just forget I mentioned it (which I’m thinking should be easy for you).
That’s a wrap. There are a lot of posts in the queue, and I hope to get to them all soon.
Happy Friday everyone!
Ashley Revell’s net worth roulette spin. Just try watching without getting a little excited.